Last month, one of the largest Powerball jackpots ever was won - a whopping $699.8 million dollars.
While having a windfall like this sounds like a dream come true, it can become a living nightmare if you don’t plan for the taxes on your huge winnings.
Let’s dissect the $699.8 million dollar jackpot in particular.
You may not know this, but winners have two choices for how they receive their prize - they can either take reduced winnings upfront or get them paid out over 30 years.
Either way, you’re going to have to pay taxes.
The lump sum payout (by far the most popular option) is reduced to $496 million right off the top to discourage winners from taking this route. At this point, 24% is taken from the winnings for federal tax (about $119 million), leaving the winner with a cool $377 million.
Sounds great, right?
Yeah, maybe not. The next time you do your taxes, you’re probably going to be absolutely floored with what you owe. Now you’ll have to pay state and local taxes - and the top marginal income tax rate is currently 37%.
That’s where planning comes into play! If you immediately run out on a spending spree and don’t have enough to foot your shiny new tax bill - you’re gonna have a bad time. Uncle Sam doesn’t take kindly to not paying taxes.
Now - that said, there are ways to reduce that tax bill, and knowing how to do that comes with experience and training.
Let’s be real - you’re probably not going to have to plan for taxes on a lottery jackpot, but you’re going to have to plan for taxes on your retirement nest egg. It’s a similar situation. If you don’t know how to minimize your tax burden, your retirement could be in jeopardy.
If you’d like to talk about how you can reduce your tax burden in retirement, give us a call at 630-796-7290 to book a time to talk.